Feb. 16 (Bloomberg) -- Wal-Mart Stores Inc. had the worst
sales start to a month in seven years as payroll-tax increases
hit shoppers already battling a slow economy, according to
internal e-mails obtained by Bloomberg News.

“In case you haven’t seen a sales report these days,
February MTD sales are a total disaster,” Jerry Murray, Wal-Mart’s vice president of finance and logistics, said in a Feb.
12 e-mail to other executives, referring to month-to-date sales.
“The worst start to a month I have seen in my ~7 years with the
company.”

Wal-Mart and discounters such as Family Dollar Stores Inc.
are bracing for a rise in the payroll tax to take a bigger bite
from the paychecks of shoppers already dealing with elevated
unemployment. The world’s largest retailer’s struggles come
after executives expected a strong start to February because of
the Super Bowl, milder weather and paycheck cycles, according to
the minutes of a Feb. 1 officers meeting Bloomberg obtained.

Murray’s comments about February sales follow disappointing
results from January, a month that Cameron Geiger, senior vice
president of Wal-Mart U.S. Replenishment, said he was relieved
to see end, according to a separate internal e-mail obtained by
Bloomberg News.

“Have you ever had one of those weeks where your best-prepared plans weren’t good enough to accomplish everything you
set out to do?” Geiger asked in a Feb. 1 e-mail to executives.
“Well, we just had one of those weeks here at Walmart U.S.
Where are all the customers? And where’s their money?”

Shares Fall

Wal-Mart fell 2.2 percent to $69.30 yesterday at the close
in New York for the biggest decline since Dec. 12. The shares
rose 12 percent in the 12 months through yesterday, compared
with a 9.4 percent gain for the Dow Jones Industrial Average.

“As with any organization, we often see internal
communications that are not entirely accurate, that lack the
proper context and represent individual opinions,” David Tovar,
a Wal-Mart spokesman, said in an interview, adding that the
company will report fourth-quarter earnings on Feb. 21. Wal-Mart’s fourth quarter ends in January.

Both executives attributed the performance to increased
payroll taxes and delayed tax returns, which Geiger called “a
potent one-two punch,” according to the e-mails.

Tax Refunds

About $19.7 billion more in tax refunds had been delivered
to shoppers by this time last year, according to an analysis
prepared by Wal-Mart’s Global Customer Insights & Analytics
division that was attached to Murray’s e-mail on Feb. 12. The
retailer expected returns to be delayed by three to four weeks
because of the late release of tax forms and additional,
federally mandated tax-fraud scrutiny.

When a payroll-tax break expired Dec. 31, Americans began
paying 2 percentage points more in Social Security taxes on
their first $113,700 in wages. For a person making $40,000 a
year, that is about $15 a week.

The extra tax bite is about equal to a year of car
insurance for a family making $30,000 or a basket of groceries
per month for a family making $50,000, according to Wal-Mart’s
analysis.

Other retailers who court low-income Americans also are
bracing for the rising taxes.

Customers’ Wallet

Higher payroll taxes “go against our customers’ wallet,”
Family Dollar Chief Executive Officer Howard Levine said on a
Jan. 3 conference call. “Clearly, they do not have as much for
discretionary purchases than they did.”

Wal-Mart’s Geiger in his e-mail urged employees to improve
business by “fixing something that could really make a
difference to our performance.” He quoted Tim Yatsko, the
company’s executive vice president of global sourcing, saying:
“We need to ‘stop the stupid.’”

Wal-Mart U.S. CEO Bill Simon said during a Feb. 1 officers
meeting, the minutes of which were attached to Geiger’s e-mail,
that the troubled economy leaves little room for internal
errors.

“In an environment like this, we can’t afford to hurt
ourselves,” Simon said, according to the minutes. “Self-inflicted wounds are our biggest risk and our toughest enemy.”

Company Challenges

Simon cited negative economic growth, declining consumer
confidence and rising unemployment as challenges facing the
company. The U.S. economy shrank at a 0.1 percent annual rate in
the fourth quarter, and the unemployment rate rose 0.1
percentage point to 7.9 percent in January. The Conference
Board’s measure of consumer confidence declined last month to
the lowest since November 2011.

Even with a slow January, Wal-Mart is gaining market share
steadily, Simon said.

“That points to our competitive landscape, which means
everyone is suffering and probably worse than we are,” Simon
said, according to the minutes.

The company must focus on process and execution, he said.

“We have to fight against the tougher economic environment
to earn a bigger share of a smaller consumer spending pie,”
Simon said, according to the minutes.